Entrepreneurship, World Bank and Pakistan

Ali Baba one day sales crossed $25 billion! The entire annual exports of Pakistan are only $20 billion. Still don’t believe in how tech startups can help Pakistan economy,” Dr. Umar Saif of PITB’s fame tweeted.

Dr. Saif isn’t the only person to express excitement over Pakistan’s growing start-up culture. Entrepreneurship, tech, and innovation were the buzzwords at the ‘021disrupt’ conference held by Jehan Ara’s The Nest I/O in Karachi, and at PITB’s The Mix Festival in Lahore. Tech start-ups have also found fans in the World Bank – so much so its latest issue of Pakistan Development Update (PDU) contains a special section on Pakistan’s start-up ecosystem.

That’s all hunky dory. But in all this excitement the stakeholders seem to be missing two key points.
First, in a country like Pakistan intermediation-obsessed tech start-ups can only do so much. The key lies in manufacturing. The future of manufacturing revolves around technology, including 3-D printing.

Yet there is no focus on tech start-ups that can potentially meet the requirements of Pakistan’s manufacturing sector. Or is that Pakistan must continue to import technology in the 4th industrial wave as well.

In latest PDU, the World Bank wrote that start-ups have the potential to introduce innovative ideas into the marketplace, create jobs, and contribute to economic growth. Speaking at the launch of PDU, Junaid Iqbal, of Careem’s fame, echoed these sentiments. To make a point how start-ups contribute to employment, Junaid said that Careem employed thousands of drivers. That may be the case, but to convince whether Careem and other intermediaries are indeed contributing to job creation, start-up pushers have to show whether those employed by start-ups were previously under/un-employed or merely switched from one job/industry to another.

The second missing element from the discourse stems from the misplaced notion of entrepreneurship. That entrepreneurship doesn’t exist in Pakistan is a myth. According to the last wave of Labour Force data, only 41 percent of employed persons in Pakistan are paid employees. Even in urban areas, where farming sector employment is negligible, paid employment is 57 percent. This means that a decent 43 percent are either employers, self-employed, or contributing family workers, all of which by standard definition fall in the category of entrepreneurs.

In its latest PDU, the World Bank defends its position by stressing that they are concerned with growth-oriented entrepreneurship, which it defines as “businesses with the potential to grow and generate employment”. It contrasts ‘growth-oriented’ entrepreneurship with ‘necessity’ entrepreneurship, which provides livelihoods to those who opt for self-employment for lack of other opportunities and do not necessarily have the skills or aspirations to grow their business.

Yet without providing a metric to differentiate ‘growth-oriented’ with ‘necessity’ entrepreneurship, the bank makes a claim that ‘growth-oriented’ is very low in Pakistan. This column wonders how the World Bank explains the growth of informal ‘dhaba’ expansion. Must all entrepreneurship be tech, or employ English-speaking graduates to be classified as growth-oriented entrepreneurship.

The reality based on anecdotal evidence and forensic indicators – such as rising real estate prices – is that Pakistan trades in the dark and grows in the shadows. Few cart-businesses grow formal, but they do continue to grow and generate employment, which is how World Bank defines ‘growth-oriented’ entrepreneurship. The ‘dhoodh-patti’ that is fuelling this article comes from a ‘dhaba’ that is run by a person who started off with one establishment, and now has four.

As this column noted in an article titled “The Khoka Economy” (published in BR’s Retail Review Oct 31, 2017), the long road to reforms must begin with documentation. The provincial bureaus of statistics need to be strengthened to build the right basis of information. Registration of economic establishments (courtesy Nadra) and electronic cash registers should be made mandatory. But not without simplification of regulations and tax policies. Payments to suppliers and payments received from customers also need to be formalised, which can be done by incentivising and encouraging e-payments and m-wallets.

There are so many other possible solutions to informality. But let’s not get the diagnosis wrong. The problem is not entrepreneurship; it’s informality.